Finance & Banking

Last updated: Wednesday, February 21, 2018

Derivatives: Important Milestone for Vietnam Stock Market

Posted: Tuesday, March 21, 2017

The plan for opening the derivatives market will be drafted by the State Securities Committee of Vietnam (SSC) at the end of March and will be then submitted to the Ministry of Finance for further submission to the Government for consideration and approval, said Dr Nguyen Son, Chairman of the Vietnam Securities Depository (VSD). The derivatives market is expected to be launched in May. All preparations for the launch such as legal framework, technology, products and training are urgently completed.

At a recent meeting on the derivatives market hosted by the Hanoi Stock Exchange (HNX) and the Vietnam Securities Depository, Ms Ta Thanh Binh, Head of SSC Market Development Department, said, together with Decree 42/2015/ND-CP and Circular 11/2016/TT-BTC, the draft amendment to Circular 11 was submitted to the Ministry of Finance and expected to be approved in the next few weeks.

In addition, regulations and procedures concerning activities on the stock market drafted by HNX and VSD are also being reviewed by SSC, which is expected to be approved at the same time with the Circular 11.

The Vietnamese stock market is being perfected and developed. Many inadequacies in management and organisation will have to be addressed and completed to meet market requirements. So, to facilitate the acceptance of derivatives, the Ministry of Finance and the SSC have considered granting incentives for potential entrants on this market. She said the Ministry of Finance will not collect derivative transaction fees from its members when they join this market in the first phase. Derivative fee charging at securities companies will be decided by agreements between such companies with their customers.

Regarding tax, the SSC proposed the Ministry of Finance to exempt taxes on derivatives in three years. South Korea exempts 20 years while Indonesia and Singapore do not collect derivatives taxes.

Ms Binh explained that the derivatives market is different from the underlying market. At the underlying market, the completed transaction results in the transfer of asset (money and securities). At the derivatives market, the completed transaction is just a transfer of buying - selling position. Thus, the tax is very low on the derivatives market (1 per cent or 0.001 per cent of tax rate on the underlying market).

After the derivatives market is put into operation, investors will be subject to tax on transaction value as regulated by the law. If this calculation is applied to derivatives, it will be difficult to draw participants and this does not fit international practices.

Therefore, securities companies that took the lead in developing the derivatives market like SSI, BVSC and MBS suggested that the Government and the National Assembly need tax incentives for the development of the derivatives market to exert a stronger pull on more resources at the early stage.

Ms Nguyen Thi Thu Ha, Director of the HNX Derivatives Department, said that, on the derivatives market, the listing and delisting of derivatives follow timed terms. On the stock exchange, listed shares can face delisting when they fail to meet certain listing conditions.

On the underlying market, underlying assets always have a certain number of listed assets (the number of shares/bonds issued by the issuer) but there is no fixed number of listed shares.

Derivatives will use an open volume indicator to indicate the market position of how many contracts have been contracted by buyers and sellers. Therefore, the volume of derivative securities is indefinite and dependent on the demand of buyers and sellers.

She said the derivatives market will have a positive impact on the traditional stock market as it increases the liquidity of the underlying market and investors have more instruments to hedge investment risks. For that reason, the market will draw more investment capital, especially hedge funds.

The impact of the derivatives market on the traditional stock market will be clear by time. And, operating the derivatives market is an indispensable way to improve the structure of the financial market in Vietnam.